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Preliminary Injunction Halts Final Rule and DOL Guidance Implementing “Fair Pay and Safe Workplaces” Executive Order From Going Into Effect

President Obama issued Executive Order 13673, titled “Fair Pay and Safe Workplaces”, on July 31, 2014, with the goal of ensuring that federal agencies contract with companies that have a record of complying with labor laws.  On August 25, 2016, the Department of Labor (“DOL”) and the Federal Acquisition Regulatory (“FAR”) Council issued a Final Rule and DOL Guidance regarding Executive Order 13673.  The new requirements from the Final Rule and DOL Guidance were set to go into effect today, October 25, 2016, with regard to federal contracts with a total value expected to be equal to or greater than $50 million. Beginning on April 24, 2017, the new requirements would apply to contracts with a total value of $500,000 or more.  However, a federal district court in Texas issued a preliminary injunction yesterday enjoining enforcement of the Final Rule and Guidance with regard to any mandatory reporting of labor law violations, as well as the restriction on pre-dispute arbitration agreements.

The lawsuit, Associated Builders and Contractors of Southeast Texas, et al. v. Anne Rung, et al., Civil Action No. 1:16-CV-425, was filed on October 7, 2016, in the United States District Court for the Eastern District of Texas seeking injunctive and declaratory relief against the Executive Order, as well as the Final Rule and DOL Guidance that implements it.  In its Order, the court held that it is outside of the authority of the DOL and FAR Council to impose public disclosure and disqualification requirements on federal contractors and subcontractors, especially when the finding of disqualification can be based upon non-final administrative merits determinations, as would be allowed under the Final Rule and DOL Guidance.  The court also found that the Final Rule and DOL Guidance violated contractors’ First Amendment rights by requiring them to forego the “right not to speak” and, instead, forcing them, if they wished to bid on federal contracts or subcontracts, to publicly disclose various alleged labor law violations even when there has been no final determination on the merits and regardless of the severity of the alleged violation.   Finally, the court held that the Executive Order and Final Rule violate the Federal Arbitration Act to the extent they prohibit contractors from requiring employees to enter into pre-dispute agreements to arbitrate any claims arising under Title VII or any related tort claims for sexual assault or harassment.  As such, the court has enjoined both the mandatory disclosure requirements with regard to alleged labor law violations and the prohibition against pre-dispute arbitration agreements.

Notably, the court upheld the “Paycheck Transparency” provisions of the Final Rule.  These provisions require covered contractors to provide each employee who works on a covered contract or subcontract a wage statement for each pay period that identifies the number of hours worked, overtime calculations (for non-exempt employees), rates of pay, gross pay, and additions or deductions from pay.  Contractors must also provide written notice to any individuals performing work on a covered contract or subcontract who are considered independent contractors informing them of their status as independent contractors.  Such notice must be provided either when the independent contractor relationship is first established or before the individual begins working on the covered contract or subcontract.  Since this requirement was excluded from the injunction, it is set to go into effect on January 1, 2017.

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